China’s central bank might move to introduce greater flexibility to renminbi’s exchange rate, which in turn would increase the currency’s two-way volatility, according to HSBC.
The IMF has endorsed the renminbi as a freely usable currency, recognising China’s increased importance in the global financial market. The renminbi’s journey to attaining this status was never straightforward.
Finance ministers and central bankers from the G20 group have promised to give each other a heads-up on actions that could trigger major devaluations of their currencies.
The People’s Bank of China wavered on the renminbi’s fixed rate in the first week of 2016, leaving many puzzled as to its stance on the currency and questioning the transparency of its policies.
While analysts generally believe China’s latest cuts would release more liquidity into the renminbi market, it is still too early to get excited, CT warns.
China’s central bank has not given any indication it will widen the renminbi trading band, as the cabinet instructed last week, which has disappointed market participants.
China’s plan to increase the trading band in the renminbi bring more volatility to trading the currency, but also more opportunities to gain better prices.